As a FTB how will you be affected by interest rate hikes?

S

SteelBlue05

Guest
There is a lot of talk of First Time Buyers being badly affected by interest rate hikes. As a FTB myself I had factored in an increase of up to 2% to make sure I could afford repayments.

If the base ECB rate goes beyond 5% I will be looking at renting out a room in my house and\or hoping I will be earning more by that time. If things went really bad I would consider using some of my SSIA to pay off some of the mortgage principal next year.

I am hoping some FTBs will reply here and let us know how things are looking for them, I would think the majority have things under control? At what base ECB rate would you start to have problems, or have a lot of FTBs opted for Fixed rates?
 
FTB, bought about two years ago based on what I thought I could afford rather than what the banks were willing to lend me. Apart from an SSIA account I've also been saving what is roughly the difference between what my mortgage costs and what rental on an equivalent property would be.

Thus far I've resisted the urge to pay a chunk off my mortgage because my investment returns have been much higher than my mortgage rate.

If the base rate was 8%-9% I'd certainly feel the pinch a bit and in that situation it might be worth considering paying off a chunk of it.

I very much doubt I'll be forced into a situation where I will need to sell or be unable to meet my repayments. I'm also expecting a substantial (>50%) wage increase next year so this should be of help.

The only situation I can see myself selling in is if job opportunities become more attractive abroad and I wish to move.
 
same position as previous poster - 8-9% and i will be back on student meals & clothes for a while;) but i have been disciplined with myself to spend 500 per month so i won't be out on my ear i will just see my slush fund decreased!
I am optimistic though - spend spend and God will send!
 
Can I ask do you have a small mortgage or have you rented out rooms or something? As I would have thought an increase to 8-9% would be difficult to handle for most FTB's, I suppose it depends on the size of the mortgage relative to income....what % of your net monthly income currently goes on mortgage repayments?
 
ftb, last year, bought a house where the mortgage repayments were equivalent to the rent i would of had to pay on it. (getting very rare now).
The latest rate rises have pushed my repayments over what the rent would be on a similar property, but still very managable. I cant forsee myself having any problems (unless of course i have no job and hence no regular income). I think i am lucky in that the house i bought was "good" value and i did not strech myself too much. I probably could have afforded a bigger mortgage, but whats the point i had a good lifestyle and didn't wnat to pay more than what rent i was payin.

i think the rates would have to increase to maybe near 10% before i would have to cahnge the way i live, but then if that or when that may happen I will hopefully be in a better fianicial position.
 
SteelBlue05 said:
Can I ask do you have a small mortgage or have you rented out rooms or something? As I would have thought an increase to 8-9% would be difficult to handle for most FTB's, I suppose it depends on the size of the mortgage relative to income....what % of your net monthly income currently goes on mortgage replayments?
Click to expand...

Small mortgage, small 1 bedroom house, located in one of the less salubrious areas of this fair city. Still, the property bubble currently has people paying silly money even for houses here!

Percentage wise, currently I'm spending about 25% of my net monthly income on my mortgage. Though even with expected rate rises this percentage will fall considerably as I expect to be earning considerably more in 12-18 months time.

I'm sure if W2DW has a glance over this thread he'll tell you that rates of 8-9% are exactly what you should be preparing to handle ...
 
room305 said:
I'm sure if W2DW has a glance over this thread he'll tell you that rates of 8-9% are exactly what you should be preparing to handle ...
Click to expand...

Yeah but I think he will be surprised at peoples ability to cope with such a big increase. Although we have had only a few responses.
 
SteelBlue05 said:
Yeah but I think he will be surprised at peoples ability to cope with such a big increase. Although we have had only a few responses.
Click to expand...

Also the people who post here tend to be very smart and probably don't reflect the situation of the huddled masses ... ;)
 
SteelBlue05 said:
Yeah but I think he will be surprised as peoples ability to cope with such a big increase. Although we have had only a few responses.
Click to expand...

It's not necessarily the increase in mortgage repayments that will affect many FTBs but rather the fact that increasing rates mean there won't be anymore FTBs out there who can afford to purchase off them what was supposed to be a starter home.

Once rates go up, in fact the point may already have been reached, whereby no more FTBs can get enough credit approval in order to buy at the presently inflated prices then anyone who's bought in the last couple of years will be stuck in a property that they can't sell at the current price.
 
I don't think the issue is the FTB squeeze - it is much more likely to be the investors who are heavily geared on IO mortgages where the rent is already falling short of the mortgage.

From my straw poll at work, the people who bought post-2003 would appear to be in this predicament and it is much worse for the canny investors who bought in 2005/06 .

FTB's normally do not have IO loans so are not as exposed.
 
FTB since May. Luckily got a good rate on a 2 year fixed mortgage from NIB and didn't max ourselves anyway (banks prepared to throw alot more money our way - could've got at least 70k extra).

I don't think the interest rate increases are putting FTBs off buying as it's creeping up gradually. Stamp duty is a bigger chain around your neck IMHO. I still haven't gotten over the pain of it!
 
Neffa said:
FTB's normally do not have IO loans so are not as exposed.
Click to expand...

A number of financial gurus started promoting the idea of FTBs using IO loans in the last year, say for the first few years in order to keep the whole life/home balance thing. So I wouldn't be so sure that FTBs won't be caught out by rate rises, though I think it'd be pretty rare.

But anyway I think the bigger issue is the fact that potential FTBs will see their purchasing power decrease substantially with each .25% increase. Whilst existing owners will have to make do with forking out an extra E50 or so a month with each increase, FTBs will simply not get the mortgages required to buy E500K apartments, or at least with each rise they'll potentially lose E20K of purchasing power.
 
This is the key point,the reduction in purchasing power by potential FTB's at the bottom of the pyramid will simply have to effect the overall market. There will be less money feeding the beast.
 
It's been mentioned here before but the FTBs who will be most affected I think, are those who have bought in an area they don't actually want to live. Those who bought to "get on the ladder" hoping their house would appreciate sufficiently to provide a deposit for an even more outrageously priced house in an area they want to live in.

When those gain don't materialise, or indeed the house even depreciates in value, those FTBs will be stuck where they are.
 
room305 said:
It's been mentioned here before but the FTBs who will be most affected I think, are those who have bought in an area they don't actually want to live. Those who bought to "get on the ladder" hoping their house would appreciate sufficiently to provide a deposit for an even more outrageously priced house in an area they want to live in.

When those gain don't materialise, or indeed the house even depreciates in value, those FTBs will be stuck where they are.
Click to expand...
That's a key point. FTB just under a year ago, we bought in an area we'd be happy to live in for 10 years. I think it was worth it even with having to pay stamp duty, as opposed to a new house a further out of the city. I'm also able to cycle to work which balances out the greater expense by not having to run a 2nd car.
As for interest rate rises we're fixed at 2.75% for one year, and well aware of what kind of increase we'll get hit for once we come off this.
 
fago76 said:
As for interest rate rises we're fixed at 2.75% for one year, and well aware of what kind of increase we'll get hit for once we come off this.
Click to expand...

The house you live in isn't necessarily an investment and it has a utility value. If you like where you live then negative equity isn't necessarily the end of the world.

Two pieces of advice:

- If you have any lump sums of money (SSIA etc.) it may be worth paying off a chunk of your mortgage before the new higher interest rates kick in.
- Start living as though you were paying the increased rate. Start saving the difference between what your mortgage repayment is now and what it will be. This way it will manifest as less of a shock.
 
room305 said:
- If you have any lump sums of money (SSIA etc.) it may be worth paying off a chunk of your mortgage before the new higher interest rates kick in.
- Start living as though you were paying the increased rate. Start saving the difference between what your mortgage repayment is now and what it will be. This way it will manifest as less of a shock.
Click to expand...

Excellent advice and very timely given the direction of rates.
 
Although I'm actually a second time buyer I hope no-one objects to me posting here. A lot of people I know who are making one move up the property ladder and buying their second house are now also keeping their first house/apartment to rent out. I think this is very scary in the current climate because although they will have made money on their first purchase they are not cashing in this gain to buy their next house. Instead they still have mortgage number 1 and are now borrowing hugely to buy their second house. I can see these people experiencing more pain as interest rates rise than ftbs.
 
You must log in or register to reply here.
Back
Top